About the Author

Dr Matt Ridley

Matt Ridley is a Member of the House of Lords and an acclaimed author. His books have sold over a million copies and have been translated into 30 languages. "The Rational Optimist: How prosperity evolves" won the Hayek Prize in 2011. It argues that humans are not only wealthier, but healthier, happier and more equal than they have ever been, because the source of human innovation is not individual inspiration through reason, but collective intelligence evolving by trial and error from the sharing of ideas through exchange and specialization. The secret of human prosperity is that everybody is working for everybody else. Matt is married to neuroscientist Professor Anya Hurlbert and has two children. They live at Blagdon near Newcastle upon Tyne. More information can be found on:
www.rationaloptimist.com

UK Welfare reform and unemployment

Five years ago, almost nobody expected that inflation would vanish or that unemployment would plummet. Whatever else you think about this government, there is no doubt it has presided over an astonishing boom in job creation like nowhere else in the developed world.

The milestones are impressive: an average of a thousand new jobs a day over five years; unemployment down by almost half a million in a year; a jobless rate half the eurozone’s; more jobs created than in the rest of Europe put together; more people in work, more women in work, more disabled people in work than ever; the highest percentage of the population in work since records began. All this while the public sector has been shedding 300 jobs a day.

In a speech in September 2010, Ed Balls accused George Osborne of “ripping away the foundations of growth and jobs” and said that “against all the evidence, both contemporary and historical, he argues the private sector will somehow rush to fill the void left by government and consumer spending, and become the driver of jobs and growth”. (Yup, Ed, it did.)

Is it too good to be true? I’ve talked to economists who think the statistics must be misleading. The Labour party says that the sanctioning of benefit seekers for the most trivial offences, such as turning up late for interviews, has driven hundreds of thousands out of the numbers, into dead-end apprenticeships, cruel zero-hours contracts or doomed self-employment.

In a sense, they are not wrong. The government’s reforms, pushed by Iain Duncan Smith, are indeed a crucial cause of the surprising surge in employment. The reforms have indeed used tough love to push people back into the workforce and off welfare. As long as they are no worse off, this is no bad thing. Given that welfare has treated people like children and conditioned them not to take responsibility for their lives, it is a good thing.

For example, early trials found that making unemployment claimants sign contracts in which they promise to look for work (which is now universal) frightened quite a few people off the system straight away — they had been working while claiming to be unemployed. Regular re-testing of those who claim sickness benefits has brought many fit people back into the labour force, while actually increasing benefits for some of those whose conditions have deteriorated. Paying work programme providers by results, so that if they get people back into employment they get a bonus, has worked.

And yes, the threat of sanctions if claimants do not treat unemployment benefit as a wage for the full-time job of looking for work has helped. The philosophy behind these reforms has not been about cuts, IDS insists, but about reconditioning people’s attitudes so they take responsibility for their choices. Little things can make a big difference: like not having rent paid for you, but having to budget for it from your housing benefit. Most benefits are paid fortnightly but most employers pay monthly, so going from welfare to a job often brings a budgeting crisis. Universal credit is paid monthly wherever possible.

To general surprise, the welfare reforms have proved to be among the most popular things this administration has done. Four in five trade union members think the £26,000 cap on benefits is a good idea, which is why the Conservatives are planning to push it down to £23,000 if re-elected. Polls suggest that a policy of limiting benefits to two children, so you could not get rehoused by having extra children, would be wildly popular, as would a manifesto promise to withhold benefits from immigrants till they have contributed taxes for four years.

Tory candidates out canvassing tell me they are finding that welfare reform, while horrifying the metropolitan elite, is most popular in the meanest streets — where people are well aware of neighbours who play the system. It is a staggering fact that when Labour was in power and while the economy was growing, the cost of welfare rose by 50 per cent in real terms, even as immigrants poured in to work here.

The latest figures also suggest that British people from inner-city estates are increasingly competing with immigrants for low-paid jobs. We now have the smallest number of households with nobody working and a record rise in the number of people who live in social housing who are working. That feeds through to healthier lives and less crime.

Universal credit, where it is being rolled out, has had an immediate impact in making people more likely to go to interviews and more likely to take jobs. Australian, New Zealand, Canadian, German and American teams are monitoring Britain’s welfare reforms with a view to emulating them.

Another international comparison is illuminating. Switzerland has 3 per cent unemployment, Spain 23 per cent. As James Bartholomew recounts in his book The Welfare of Nations, Swiss unemployment benefit is slightly more generous than Spain’s, at least initially, but to receive it you must prove every month you are actively looking for a job. Switzerland has one of the strongest such “search requirements”.

In Spain the requirement for the unemployed to seek work is much less onerous. It is up to a public agency to find jobs for you to consider and you don’t have to accept them if they are outside your line of work or based more than 19 miles away. It is possible to take long holidays abroad while receiving unemployment benefit. There are other differences. Switzerland has no minimum wage and makes it comparatively easy to fire people, both of which make employers keener to hire unskilled young people. In Spain, the cost of hiring somebody at a salary of 1,500 euros a month is about twice as much as the employee receives after tax and social security — three times as large a “wedge” as in Switzerland.

This government’s reforms have made us less like Spain and more like Switzerland. Nor are most of the jobs created in the past five years insecure, poorly paid and part-time. Since 2010, 60 per cent of the rise in employment has come from managerial and professional jobs. In any case, shoving people into some kind of work rather than parking them on welfare has to be better for their morale and their future.